Measuring progress: GRESB and the growing importance of ESG in the infrastructure asset class
In the infrastructure asset class, sustainability practices differ across sectors and no consensus has been reached on greater decarbonisation strategies, so the development of common frameworks and standards to measure the industry’s progress toward sustainability is crucial.
Each year, as an industry-led organisation that provides actionable and transparent data to financial markets, GRESB applies its infrastructure standards to collect data on progress made against environmental, social, and governance (ESG) metrics by the assets and funds in its databases. In 2022, these represented more than USD1.1 trillion gross asset value (GAV) for infrastructure assets and around USD662 billion GAV for infrastructure funds.
These standards, combined with widespread adoption of GRESB by infrastructure assets and funds globally, provide an accurate overview of the general ESG trends and practices across the industry. In 2022, over 170 institutional investors, with over USD51 trillion in assets under management used the data to monitor their investments, engage with their managers, and make informed decisions to increase sustainability. This was double the number who engaged with GRESB in 2020, demonstrating the growing importance of sustainability practices in infrastructure.
GRESB’s infrastructure standards methodology is applied to generate ESG benchmarking information for infrastructure assets and funds, as outlined below.
- At the assets level, scores are calculated by evaluating management and performance components that account for 40% and 60% of the total ESG score, respectively.
- The management component comprises a set of qualitative indicators (policies, stakeholder and leadership engagement, and risk management). Management scores are based on supporting evidence for most of the indicators, validated by an independent provider.
- The performance component comprises a set of quantitative indicators and metrics (energy, greenhouse gas emissions, air pollution, water, waste, biodiversity and habitat, etc). Performance scores are based on GRESB's materiality assessment of each reporting entity. Only ESG metrics that are considered of high or medium relevance are used when calculating the performance component of each asset's score.
- At the funds level, scores are determined by evaluating management and performance components, which account for 30% and 70% of the total ESG score, respectively.
- The management component considers fund information provided by general partners (GPs) regarding leadership, policies, risk management, and stakeholder engagement aspects.
- The performance component is based on the aggregate performance of the portfolio in terms of both qualitative and quantitative information reported by the underlying assets.
Evolving infrastructure standards
The GRESB assessments are constantly evolving to reflect the most pressing issues and industry needs. Every year, the GRESB Foundation Board (an independent organisation responsible for establishing the GRESB ESG standards) carries out a review and prioritisation exercise as part of its development process. As a result, the 2023 standards were updated to include evaluations of whether an entity had set net zero targets, which is considered a key aspect of an entity’s plan to reach net zero. Currently, GRESB assesses only the presence of a net zero target, not the underlying details.
Also being assessed in 2023 is the presence of net zero policies and publicly available net zero leadership commitments.
The process of evolving the standards also includes analysing ESG dimensions individually. This year, the exercise found a general view that there is less consensus on what good performance and actions look like for infrastructure’s social aspect than for other aspects. It also found a lack of understanding about key social metrics, and there has been a partial shift toward awareness of and striving for diversity, equity, and inclusion (DEI). GRESB surveys highlight DEI as a pressing priority to be addressed in current assessments. As such, the 2023 assessments were updated to integrate DEI aspects of governance, and by reflecting in ESG scores when infrastructure entities have DEI objectives in place or have dedicated employees for whom DEI are a core responsibility.
Social and environmental highlights from 2022 data
When we look at overall performance through the social dimension of ESG, we see that the DEI gender split across all employees remained constant in recent years at 40:60 (female to male) at the fund level. At the asset level, the benchmark average remained less balanced at 30:70, with no strong sectoral differentiation.
On the other hand, environmental issues, especially the challenges related to decarbonisation, rose significantly on the agenda of both GPs and limited partners (LPs). For instance, in 2022 we saw the coverage levels of Taskforce on Climate-related Financial Disclosures (TCFD) aligned indicators increase from the previous year, with coverage of TCFD governance, strategy and metrics, and targets increasing by 5% on average.
GRESB’s ESG supplement to the GI Hub’s Infrastructure Monitor 2022 report shows that more infrastructure assets are setting greenhouse gas (GHG) emissions targets. 39% of renewable assets have now set zero emissions targets, however other infrastructure sectors have not been as successful, with only 9% of transport, 7% of social infrastructure, and 7% of water infrastructure assets having established zero emission targets.
The final aggregate results of the 2023 Infrastructure Benchmark, including the addition of net zero information, will be published in October 2023.
The future of ESG in infrastructure
GRESB expects the topics of climate change and net zero will continue to be addressed and implemented in future standards. This will enable the industry to continue transitioning from a transparency-based approach to ESG assessment to a performance-based approach that provides a more precise view of how infrastructure entities are affecting the climate transition, while continuing to constantly assess and value the relevance of ESG issues.
The GI Hub’s Infrastructure Monitor 2022, data insights, and policy articles uncover global trends in private investment in infrastructure to inform future investment and policy and steer a course toward more sustainable, resilient, and inclusive infrastructure. View the report.